CDs to pay my House Payment Thoughts?

[harley]

work on paying extra every month on that mortgage payment & get rid of it....
At that low amount, should be easy to do....

He/she already has the money to pay it off. No need to make extra payments. But the math shows that buying a CD or bonds or an annuity will be an almost guaranteed way to make more money. Especially when, in 30 years, that payment won't even be beer money after inflation gets through with it. And if rate drop back down to 0, just pay it off and enjoy what you made in the meantime.

I can understand people who don't want any debt, but it's an emotional choice, not a mathematical one.

 

[COcheesehead]

He/she already has the money to pay it off. No need to make extra payments. But the math shows that buying a CD or bonds or an annuity will be an almost guaranteed way to make more money. Especially when, in 30 years, that payment won't even be beer money after inflation gets through with it. And if rate drop back down to 0, just pay it off and enjoy what you made in the meantime.

I can understand people who don't want any debt, but it's an emotional choice, not a mathematical one.

Yep +1

 

[COcheesehead]

So I should look into a muni ladder potentially to see if I can get non-callable bonds at good enough rates is what you suggest I investigate? If I buy those all the principal is returned at cost basis as I understand it while pocketing the interest.

Principal is returned at par, not cost. So if under par - you make more. Over par - you make less.

 

[RetireBy90]

AlabaMalaysia, Looks like you have run into the religion wars. Some will say no way you should ever take a mortgage or bills into retirement no matter what. Yes, if your analysis of your financial position is correct then you will have what you need to payoff in one payment or take the mortgage along for the ride and enjoy the arbitrage. This discussion of taking the mortgage with you into retirement or not is a separate one which I think you understand.

For the discussion on annuity I would think that it would transfer any risk to the annuity company but could also be a risk if you or spouse were to pass before the mortgage is paid off. If I understand them they are normally sold to stop paying when the insured is gone which would leave survivor paying the mortgage from other funds. You could buy one that insures both you and spouse but that would be more expensive than a single insured. Interesting to think about this and try to understand what risks are there but in the end I wouldn't do an annuity but would either do the CDs or put the funds into a couple good dividend paying stocks or dividend fund and use it to pay the note, but that is just my preference.

 

[ivinsfan]

So you mean to keep the $110K and put into interest bearing safe asset like CDs versus just paying the house off? We have the home payoff cash regardless it is separate than our retirement withdraw money pot.

Money is money....if you want to CD it that's up to you you can also deploy it in the market...you don't share your actual numbers or your AA which is fine. You're planning a 40 year retirement so I actually consider your WR fairly aggressive.

 

[Slater]

He/she already has the money to pay it off. No need to make extra payments. But the math shows that buying a CD or bonds or an annuity will be an almost guaranteed way to make more money. Especially when, in 30 years, that payment won't even be beer money after inflation gets through with it. And if rate drop back down to 0, just pay it off and enjoy what you made in the meantime.

I can understand people who don't want any debt, but it's an emotional choice, not a mathematical one.

To me, it is totally mathematical & not emotional at all...
If not already, will be soon that there wont be much of a tax write-off on that small $80k balance on the mortgage loan to make sense to keep the mortgage...
The interest write-off will be minimal, I was in the same scenario & discussed it with my financial / tax adviser & he agreed not much of an upside at this point.
Dont pay-off the house using that small nest-egg, continue to grow that nest-egg, thats retirement money....
Paying down $80k with just additional monthly funds toward principal will be a breeze & wont need to use his current cash to do so. The cash will continue to grow....
Once you pay-off the mortgage, you continue to invest that what was mortgage money into the market while you can....
Grow the nest-egg / retirement money...
Im just saying youre at the home-stretch at this point & wouldnt be making a the bare-minimum payment on the mortgage.

 

[AlabaMalaysia]

Principal is returned at par, not cost. So if under par - you make more. Over par - you make less.

ok thank you for the explanation

 

[AlabaMalaysia]

Money is money....if you want to CD it that's up to you you can also deploy it in the market...you don't share your actual numbers or your AA which is fine. You're planning a 40 year retirement so I actually consider your WR fairly aggressive.

From each study and calculator I have read or used in every 50 year period in the modern economic system a 50 year 2.5% withdraw rate has never failed even with worst timing and various CAPE setups.. Have seen any study that has shown other wise to share? I am always trying to make sure our math is conservative as can be especially because of our relatively young age still

 

[AlabaMalaysia]

AlabaMalaysia, Looks like you have run into the religion wars. Some will say no way you should ever take a mortgage or bills into retirement no matter what. Yes, if your analysis of your financial position is correct then you will have what you need to payoff in one payment or take the mortgage along for the ride and enjoy the arbitrage. This discussion of taking the mortgage with you into retirement or not is a separate one which I think you understand.

For the discussion on annuity I would think that it would transfer any risk to the annuity company but could also be a risk if you or spouse were to pass before the mortgage is paid off. If I understand them they are normally sold to stop paying when the insured is gone which would leave survivor paying the mortgage from other funds. You could buy one that insures both you and spouse but that would be more expensive than a single insured. Interesting to think about this and try to understand what risks are there but in the end I wouldn't do an annuity but would either do the CDs or put the funds into a couple good dividend paying stocks or dividend fund and use it to pay the note, but that is just my preference.

Thank you for your comments.

 

[AlabaMalaysia]

From looking at Fidelity's CDs ladder 5 year building as I think I read it, for $110k I could get around $5-$5,500 per year of interest over the time frame. The way then it seems is that the interest essentially pays 10 months of my mortgage + insurance cost at the present time. Essentially the bank is paying 10 months of my mortgage in the year. If I just go ahead and pay the $80ishk loan now off, I am not getting someone else to pay it for me. I am leaning towards starting buying these CDs unless there is some flaw in my thinking.

I guess this sets it up for 5 years and I can re-evaluate to just pay off or continue if rates make sense 5 yrs in future. The wife shot down the annuity idea because the money is kinda locked away, so gives less flexibility and the whole point of not paying it all off just now is because of the flexibility having that cash can provide. Thank you for the help.

 

[tulak]

I don’t consider 2.5% WR to be aggressive, but to each their own.

I wouldn’t pay off the mortgage. Why leave money on the table?

I have a significantly larger mortgage at 2.75% that I will never pay off.

Your plan sounds good to me.

 

[ivinsfan]

From each study and calculator I have read or used in every 50 year period in the modern economic system a 50 year 2.5% withdraw rate has never failed even with worst timing and various CAPE setups.. Have seen any study that has shown other wise to share? I am always trying to make sure our math is conservative as can be especially because of our relatively young age still

I was referring to your comment about having oversaved..I don't think you have oversaved which is why I would keep the cash. A lot can happen in 40 years

 

[ivinsfan]

I don’t consider 2.5% WR to be aggressive, but to each their own.

I wouldn’t pay off the mortgage. Why leave money on the table?

I have a significantly larger mortgage at 2.75% that I will never pay off.

Your plan sounds good to me.

They are very young...the OP suggests they have oversaved mentioning the trad 3 to 4 percent which is pretty high for a 40 year retirement

 

[pb4uski]

So is your monthly payment only about $327/month?

Just thinking outloud but I think you have 25 years left on the mortgage that could buy a 25 year payout annuity that would pay you $327/month for about $56,000 that would have an IRR of about 5.04% so the monthly annuity payments could be paid into the same bank account that is used to make your mortgage payments and that would defease the mortgage and earn a decent rate of return and a 2.74% spread.

Yes that's the mortgage payment amount basically in total with insurance its around $560/month.

The annuity suggestion is interesting thank you for the reply this is what I was hoping to get some different ideas to ponder. I do not know much about annuities. From my quick reading, it does seem like it ties up the cash though once you buy a plan so it may be sacrificing flexibility some if I understand correctly. But the math is interesting. Thanks will look into more details. Any companies people prefer?

Yes, if you bought a SPIA then it would tie up that money but at the same time you could put your mortgage payments on autopilot. At the same time, if you sold the house you would have to pay off the mortgage but could not accelerate the SPIA benefit payments, so that would be a downside if you are not sure that you will be in the house for the remaining term of the mortgage.

 

[FIREarly]

One thing just came to mind is while you have many years left on the mortgage, most CDs have term of 10 years or less. (I'm sure someone will say go here to get a longer term CD but this is only what I've seen offered.)

NFCU recently offered (possibly still) 5% CDs and shorter than 10 years. Think ours is 18 months.

Building up an emergency fund there (maybe pay off the mortgage with it... great job!)

 

[Mulligan]

Debt is a tool. You can manage it with math or emotions.

I also agree. I have a 2.75% mortgage, 0% car loan, and 0% CC balance transfer debt (4% upfront charge). Yes, I could pay if off, but it would all have to come out of my investment accounts. I easily service all debt payments out of my monthly pension cash flow, so Im fine with debt. I have had some sort of debt for 40 years running. Why end the streak now, lol.

 

[RetiredAndLovingIt]

I paid off my loan early because I was getting diddly squat on my savings but now things are different. I'd keep the mortgage and invest in high interest CD's. You can get 5.35% right now at some of the credit unions but the sweet spot seems to be less than 2 years right now but hopefully that will change soon.

https://www.depositaccounts.com/cd/2-year-cd-rates.html

https://www.depositaccounts.com/cd/18-month-cd-rates.html

 

[COcheesehead]

Two phrases regarding money that get screwed up all the time:
Money is the root of all evil. It’s actually the love of money is the root of all evil so in essence greed.
The other is debt is bad.

 

[Surewhitey]

He/she already has the money to pay it off. No need to make extra payments. But the math shows that buying a CD or bonds or an annuity will be an almost guaranteed way to make more money. Especially when, in 30 years, that payment won't even be beer money after inflation gets through with it. And if rate drop back down to 0, just pay it off and enjoy what you made in the meantime.

I can understand people who don't want any debt, but it's an emotional choice, not a mathematical one.

Depends imo. Having debt and CDs to pay for said debt may put you over the ACA subsidies allowed. Also, there is the effort to manage the scheme. Also there is the asset protection for a paid for home in case of being sued... Not all emotional, only some.

 

[COcheesehead]

Depends imo. Having debt and CDs to pay for said debt may put you over the ACA subsidies allowed. Also, there is the effort to manage the scheme. Also there is the asset protection for a paid for home in case of being sued... Not all emotional, only some.

No
Not hard
Only in some states

 

[harley]

Depends imo. Having debt and CDs to pay for said debt may put you over the ACA subsidies allowed. Also, there is the effort to manage the scheme. Also there is the asset protection for a paid for home in case of being sued... Not all emotional, only some.

Pretty unlikely, as you can claim the mortgage deduction if your income is that high, or if you don't qualify for it it probably won't effect the ACA subsidy. But I don't have ACA, so I may be wrong about that. Managing the scheme takes minutes. And I am not aware of the asset protection aspect, at least in my states (FL, VA, MD). I do know that failure to pay the RE taxes doesn't get you any protection, paid off or not. But I would never recommend arb'ing the house payment to anyone who is uncomfortable with it.